Kraft Heinz Offers to Buy Unilever in $143 Billion Deal

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If the Kraft-Unilever deal were to happen, it would combine consumer staples like Hellmann’s mayonnaise with Heinz Ketchup, among other brands.CreditCreditFrom Left: Arnd Wiegmann/Reuters and Hellman's

The world’s grocery carts could soon be filled with more and more products from one global colossus.

Food, beverage and consumer-goods companies have been seeking merger partners to obtain greater scale and efficiencies as consumers, particularly younger shoppers, eschew the boxed and jarred foods of their parents’ generation.

Now, one such recently merged giant, Kraft Heinz, has set its sights on the biggest target to date: Unilever, the home of Dove soap and Axe body spray, Ben & Jerry’s ice cream and Hellmann’s mayonnaise.

Kraft Heinz disclosed on Friday that it had made a $143 billion takeover offer for Unilever. If completed, it would be the largest cross-border merger since the British wireless provider Vodafone’s $183 billion acquisition of Mannesmann of Germany in 2000.

Unilever said it had spurned the offer, which it said “fundamentally undervalues” the British-Dutch company.

Still, that is not expected to end the matter. Pressed by growing competition from upstarts and changing consumer habits, food and consumer-goods giants will have little choice but to seek deals.

And 3G Capital, the Brazilian investment firm that bought Heinz, then Kraft just two years ago, has the resources and the good will of Wall Street to continue to pursue Unilever. It also has the support of Warren E. Buffett, who has previously collaborated with 3G and is expected to provide financing in any deal with Unilever.

A combination of Kraft Heinz and Unilever would create an empire of hundreds of household names, with more than $82 billion in sales. Kraft Heinz’s geographic strength in North American packaged-food sales would complement Unilever’s stronger sales in Europe, Latin America, the Middle East and parts of Asia.

Kraft Heinz executives have “said they really want to develop and have an international platform for those Kraft Heinz brands,” said Brittany Weissman, an analyst with Edward Jones in St. Louis. “I think Unilever would give them that international platform to get those brands out overseas.”

But a merger would be certain to draw antitrust reviews by regulators from many countries.

“Market power would be much increased, as the major supermarkets would have little choice but to buy from the merged business,” John Colley, a professor of practice in strategy and leadership at Warwick Business School in Coventry, England.

Kraft Heinz approached Unilever about a potential deal in the last few weeks, according to people briefed on the matter, who were not authorized to speak publicly about the negotiations.

Among its pitches, these people said, was that the combined company would maintain headquarters in the United States, Britain and the Netherlands. That could prove important amid rising nationalist sentiment, given Britain’s vote to leave the European Union and an election approaching in the Netherlands.

Kraft Heinz, with 3G behind the wheel, has long been considered the most likely to drive a wave of consolidation in the food industry. Friday’s disclosure followed speculation late last year that Kraft Heinz might make an offer for Mondelez International, the maker of Oreos and Ritz crackers

Shares of Mondelez, and those of companies like General Mills and Campbell Soup that had been seen as potential targets, fell on Friday in part because of disappointment over news of the Unilever bid. Shares of Kraft Heinz surged nearly 11 percent.

The Brazilian principals of 3G have led a buying spree over two decades to become a global force in food and beverages. In doing so, they have won the admiration of no less a business eminence than Mr. Buffett. They took a small Brazilian brewing company and eventually transformed it into Anheuser-Busch InBev, the 800-pound gorilla of beer.

They moved into fast food by buying Burger King, then merging it with Tim Hortons, Canada’s foremost purveyor of coffee and doughnuts.

And with Mr. Buffett’s help, they bought Heinz in 2013, transforming a staid American ketchup legend into a lean maker of condiments and canned soups. Two years later, in 2015, they bought Kraft to become even bigger.

Now — almost two years after the Kraft deal — 3G and Kraft Heinz are casting their eyes on Unilever, which is the fourth-biggest seller of packaged food worldwide and the second-largest consumer-goods maker behind Procter & Gamble.

Unilever, which is based in London and Rotterdam, the Netherlands, has embraced sustainability measures aimed at reducing the company’s environmental impact and improving customers’ health. It has also moved to update its products with younger, hipper names by buying start-ups like Dollar Shave Club and the cleaning products maker Seventh Generation.

And the company has built an important presence in developing countries, which now account for some 58 percent of its revenue.

Still, Unilever has been weighed down by slowing sales in the last year, prompting some analysts to call for additional cost cuts. Combining with Kraft Heinz would leave the company in the hands of masters of cost-cutting, who have won praise from Mr. Buffett.

At Burger King, for example, 3G-installed executives disposed of luxurious corporate offices, the corporate jet and even workers’ personal printers.

At Kraft Heinz, that approach has helped lead to profit margins of about 30 percent, compared with roughly 15 percent at Unilever.

Unilever said that Kraft Heinz’s bid was valued at roughly $50 a share, for an 18 percent premium to the target company’s closing price on Thursday. The offer consists of $30.23 a share in cash and 0.222 in shares in the combined company.

Under British takeover rules, Kraft would have until March 17 to announce its firm intention to make an offer for Unilever or it would have to walk away.

Shares of Unilever jumped in Friday trading in London after The Financial Times’s Alphaville blog reported the offer.

A deal for Unilever would be expensive by any measure, particularly because Kraft Heinz already has nearly $30 billion in long-term debt on its books. But Kraft Heinz has argued in private that it has healthy cash flows that could easily service the additional debt that would help finance the bid.

Some analysts, however, were cautious on the prospects of a Unilever sale. Raphael Moreau, an analyst with Euromonitor in London, said that Unilever might ultimately be willing to pursue a smaller deal with Kraft to offload some of its food brands.

“While creating synergies in sauces and soups could be a rationale for such a deal, a combination of Heinz and Hellmann’s in mayonnaise could struggle to be given approval by competition authorities,” Mr. Moreau said.

And some British lawmakers have already criticized Kraft Heinz’s approach, pointing to Brexit and the decline in the pound as paving the way for “fire sales” of British companies.

The chairman of Parliament’s business committee, Iain Wright, said on Friday that “a lot of very good British companies will be subject to fire sales without taking into account their performance and quality.”

Correction:

An earlier version of this article misspelled part of a name Kraft product. As the jingle goes, “My bologna has a second name, it’s M-A-Y-E-R,” not Meyer.

A version of this article appears in print on , on Page B1 of the New York edition with the headline: Kraft Heinz Offers $143 Billion for Unilever, Which Spurns the Bid. Order Reprints | Today’s Paper | Subscribe